The role of advisory within the wealth management industry. Paola Musile Tanzi

Transcription

1 The role of advisory within the wealth management industry Paola Musile Tanzi

2 The role of the Advisory within the Wealth management industry: key points Premise The most serious promise in wealth management High value services: Investment advisory, Portfolio Management, Financial planning The Know your Customer principle as opportunity 2

3 Premise The Wealth Management industry: different services, different clients, different players Services (promises) From investment management services, to insurance planning, retirement planning, tax planning, real estate planning, family business services, art advisory, Clients From Affluent to Ultra HNWIs (close to Institutional Investors) Players From Global Players to Niche Players, to Investment Firms, to Family Offices, to Financial Advisors... (can we compare?) different Business Models in Wealth Management 3

4 Wealth Management, a demanding market, a lot of promises 4

5 Wealth Management, the most serious promise: to be a able to keep the client s risks and onw risks under control Each customer is unique, starting from this perspective, the most recurring promise of the private banking / wealth management players becomes Each of our solutions is unique, sounds good, but behind this promise there are a lot of risks If everything is unique, then it is almost impossible and extremely expensive to keep the overall situation under control While much less exciting, the most serious promise to the client should be: We are able to keep your risks under control, and this promise becomes reliable, if the wealth management unit s risks are also under control, so We are able to keep your and our risks under control 5

6 Standardization and/or Customization? But if we need to keep risks under control we need standards Is it standard a bad word? Standard as synonym of cheap, customized as synonym of high value, always true? 6

7 Wealth Management, some ideas from other sectors Between the two extremes of the strategies of Pure Standardization and Pure Customization, there are three other strategies, with different customer and producer roles in the Lampel J., Mintzberg H., Customizing customization, in Mit Sloan Management Review, October 15, 1996 design, fabrication, assembly and distribution stages What varies in the intermediate stages is the level of involvement of the customer and, consequently, the increasing difficulty of reviewing the final result on the part of the producer 7

8 1. Pure Standardization 2. Segmented Standardization 3. Customized Standardization 4. Tailored Customization 8 5. Pure Customization

9 Wealth Management between the risk management s need and the customization s promise The process quality control has to be guaranteed in each of the stages (in reality is a continuum), but the increasing difficulty of control will have an influence on the price of the service provided Let s think at all the different stages in order to combine the risk management s need for standards and the wealth management promise of customization What do we want to customise in MW? For sure the aim is to offer high value services 9

10 High value services The higher is the responsibility, the higher is the value added High value added services as Portfolio management, Investment advisory, Financial planning, are we using the same language? 10

11 Suitability requirements Portfolio management and Investment advisory PORTFOLIO MANAGEMENT Regulatory PORTFOLIO definition MANAGEMENT : means managing portfolios in accordance with mandates given by clients on a discretionary MiFID client-by-client Framework basis where such portfolios include one or more financial INVESTMENT instruments ADVICE (Directive 2014/65/EU of 15 May 2014, MiFID2) INVESTMENT ADVICE : means the provision of personal recommendations to a client, either upon its request or at the initiative of the investment firm, in respect of one or more transactions relating to financial instruments (Directive 2014/65/EU of 15 May 2014, MiFID2) 11

12 Portfolio management and Investment advisory MiFID Framework: first of all «Know your client» The Know your client approach take into account: (a)the retail or professional nature of the client or potential clients or their classification as eligible counterparties Already in MiFID 1 MiFID 2

13 Let s focus on Investment Advice More investors have become active in the financial markets and are offered a more complex wide-ranging set of services and instruments and, in view of those developments, it is necessary to provide for a degree of harmonisation to offer investors a high level of protection across the Union. When Directive 2004/39/EC was adopted, (Directive 2014/65/EU of 15 May 2014, MiFID2) the increasing dependence of investors on

14 Investment Advice: suitability When providing investment advice or portfolio management the investment firm shall obtain the necessary information regarding the client s or potential client s knowledge end experience in the investment field relevant to the specific type of product or service,

15 Investment advice: suitability When providing investment advice, the investment firm should specify in a written statement on suitability how the advice given meets the preferences, needs and other characteristics of the retail client. The statement should be provided in a durable medium including in an electronic form.

16 Investor protection: inducement In order to strengthen the protection of investors and increase clarity to clients as to the service they receive, it is also appropriate to further restrict the possibility for firms providing the service of investment advice on an independent basis and the service of portfolio management to accept and retain fees,

17 Investment Advice: Investor protection In order to give all relevant information to investors, it is appropriate to require investment firms providing investment advice to disclose the cost of the advice, to clarify the basis of the advice they provide, in particular the range of products they consider in providing personal

18 Investment Advice: costs-benefit analysis.the cost-benefit analysis foreseen could be done in practice, for example at a central level rather than at a client-by-client basis in case of investment advice with a portfolio view or in case of portfolio management using model portfolios. Such a cost-benefit analysis must be done when switching of investments occurs,.

19 Investment Advice: Right or service? The personal and suitable investment advice, as an high value added services, it s an expensive service for both, the client and the investment firm See the UK experience after the RDR review (the Retail Distribution Regulation come into force on December 31, 2012) Advisers are allowed to use a wide range

20 Financial Planning FINANCIAL PLANNING: «Integrated practice of financial planning, including estate planning, international taxation, retirement and insurance needs, integration of their own business valuation, in addition to an holistic financial advice (European Financial Planning Association, EFPA) FINANCIAL PLANNING: No regulatory definition, no one regulatory perimeter Different activities, many different regulations 20

21 4. On going monitoring Financial Planning Process 1. Assessing Client s Needs, priorities and contraints: personal constraints objective constraints client s risk profile and time horizont balance sheet and revenues today and tomorrow 2. Plan based on the priorities, coherent with the constraints and according with the future scenarios like the suitability assignement 3. Implementing the Plan but starting from the financial planning perspective the investment s need could be just one among other client s priorities

22 Financial Planning: an integrated approach Financial Planning Art Banking Real Estate Planning Client s Needs Investment management Liability management Tax Planning Insurance Planning Pension and Retirement Planning Customer based customization based on client, not on portfolio or products Long term horizon Client satisfaction not only based on investments performances (according to EFAMA, at the end of 2016, 110,271 Funds Wordwide)

23 Financial Planning: an integrated approach Financial Planning Art Banking Real Estate Planning Client s Needs Investment management Liability management Tax Planning Insurance Planning Pension and Retirement Planning How to design the range of services? A selective range of services, keeping risks and costs under control

24 What s the Financial Advisors view? See some results from the GfK research in behalf of EFPA Europe financial advisors involved in 11 European countries (Italy, Spain, Austria, Czech Republic, France, Poland, UK, Belgium, Netherlands, Estonia, Ireland) with the aim of understanding the role of the financial adviser and their evolution over time The interviews were conducted in May-August 2017 through questionnaires

25 How much are important the following frontier innovations for financial advisor profession? Base: total sample Values in % 0% 25% 50% 75% 100% Financial Planning Estate Planning Services Tax services and successors Insurance consulting Real Estate consulting Alternative investment services Private equity Additional Services for financing new project and start up Lombard credits Trust taxation Trust Companies Club deals investments Art advisory % of Very much + Somewhat TOTAL EFPA EFPA Italy EFPA Spain EFPA Austria EFPA Czech Rep. Other countries EFPA FECIF/ANASF Source: GfK research on behalf of EFPA, October 2017

26 To what extent are you disposal to propose these innovations, to your customers? Base: total sample Values in % 0% 25% 50% 75% 100% Financial Planning Estate Planning Services Tax services and successors Insurance consulting Real Estate consulting Alternative investment services Lombard credits Additional Services for financing new project and start up Private equity Trust taxation Trust Companies Club deals investments Art advisory % of Very much + Somewhat TOTAL EFPA EFPA Italy EFPA Spain EFPA Austria EFPA Czech Rep. Other countries EFPA FECIF/ANASF Source: GfK research on behalf of EFPA, October 2017

27 Availability to propose innovations (mean = 51%) Financial planning, estate planning, tax services and insurance consulting, are perceived as a «must have» Base: total sample Values in % % of Very much + Somewhat Insurance consulting Financial planning Estate planning services Tax services and successors Real estate consulting Alternative investments services Lombard credits Additional services for financing new project and start up Private equity Trust companies Club deals investments Art advisory Trust taxation Innovations importance (mean = 56%) Source: GfK research on behalf of EFPA, October 2017

28 Wealth Management as multidisciplinary approach Strong need of integration among different knowledges for sure WM is a team work different expertises, commun language Many Business different model = The players, way the company different is DNA, different Just the business way you are models The perfect business model doesnt exist

29 Thanks for your attention Paola Musile Tanzi SDA Bocconi Università degli Studi di Perugia 29